W-9 Collection for 1099 Misc

1099-MISC

A business must send out the 1099-MISC form to any person or business it pays funds $600 or more to for rent or services. Independent contractors should be sent the 1099-MISC by the end of the January following the tax filing year, and the IRS needs its copy by Feb. 28 of the same year if you file with paper. Electronically filed forms must be sent in by March 31 to avoid a penalty.

The basic rule is that you must send 1099s to everyone to whom your company paid at least $600 during the year, and you must file copies with the IRS.

There are two very large exceptions to this rule:

• First, you do not have to report payments made to corporations, including your independent sales contractors who have incorporated their own businesses; you only report payments to proprietorships, partnerships and limited liability companies.

The exception to this exception is that you must report payments to corporations owned by lawyers, health care providers and (believe it or not) fish sellers, if the payments were for business purposes.

• Second, you do not have to report payments for the purchase of tangible things such as merchandise, furnishings and supplies; you only report payments for services and rents.

IMPORTANT!

Changes have been made to reporting rules for the 1099 IRS form, known as the “miscellaneous income” form, typically completed by freelance writers and independent contractors. This form is not applicable to those who are full-time employees.

Short Overview

Here is a short overview to help you understand the changes:

Who the new rules affect

If you were completing 1099 forms before, you will have to adjust to the new reporting requirements. This recent tax regulation applies to all for-profit corporations, except for tax-exempt organizations. If you report inaccurate or incomplete information, you may face penalty fines.

What has changed

The biggest change is mostly the volume of paperwork. Previous rules only required businesses to submit 1099 forms for payments greater than $600, typically made to independent contractors. New regulations will require 1099 forms only for payments made by check, cash, or online billpay at your bank. If you pay with credit card, debit card, or Paypal, no 1099 is required. Why? Because the Merchant Service companies are taking over that duty, and they will issue a 1099-K.

This can get very complicated if you pay a contractor with different methods throughout the year. For example, do you owe the contractor a 1099 if you paid him $600 via Paypal and $500 by check? The answer is no you do not. Do you owe a contractor a 1099 if you paid him $600 by check $300 by credit card, and $500 by Paypal? Yes, you do, but only for the $600 you paid him by check.

Please get some bookkeeping assistance on how to segregate different payment types among vendors – threre are automated QuickBooks tools that can be used to save time and maintain accuracy.

What You Need To Do

1. Collect a completed W9 form from each contractor. Blanks can be downloaded at www.irs.gov

2. Submit all W9’s to your Bookkeeper so the data can be entered into QuickBooks.

3. Make sure you have a valid email for each vendor in QuickBooks that will be receiving a 1099.

4. Contact Bridget Beck at Big Cheese Business Services for assistance in making sure your entries are correct and for help filing 1099’s electronically.